"Review of Georgia's Medicaid Cost Outlier
Payments," (A-04-04-00009)

May 2, 2006

Complete
Text of Report is available in PDF format (986 kb). Copies can also be obtained by
contacting the Office of Public Affairs at 202-619-1343.

Our objective was to determine whether Georgia’s method of computing inpatient hospital
cost outlier payments effectively limited outlier payments to high-cost cases. We found
that Georgia’s method of computing inpatient hospital cost outlier payments did not effectively
limit outlier payments to high-cost cases. Instead of applying a current cost-to-charge
ratio (costs divided by charges) to current billed charges from July 1998 through December
2002, the State agency applied an outdated cost-to-charge ratio to current billed charges,
thus increasing cost outlier payments.

The State agency relied on historical cost-to-charge ratios because its State plan amendments
required the use of audited cost report data to calculate cost-to-charge ratios. Audited
cost reports typically run about 4 years behind the current year. Had the State agency
applied current cost-to-charge ratios to convert billed charges to costs, it could have saved
approximately $22.7 million in cost outlier payments between 1998 and 2002 at the three hospitals
reviewed.

We recommended that the State agency amend its Medicaid State plan to require that the data
for calculating cost-to-charge ratios be based on submitted cost reports instead of audited
cost reports. The State agreed with our recommendation.